Understanding COBRA

What is continuation of health coverage?

Each year millions of people lose access to the health insurance coverage they were offered through an employer (group health insurance plan) due to a job change, divorce, job loss or other reasons. Fortunately, many people are able to continue their group coverage, at least temporarily, through a continuation of coverage program, also referred to as COBRA.

Most people who are able to continue their group health insurance benefits are eligible to do so according to a federal law called the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). However, COBRA does not apply to all employers; so many states have developed other continuation-of-coverage options for people who are not covered by COBRA. Also, many people leaving group insurance that intend to buy individual health insurance have portability benefits required by other federal laws.

Most Americans with employer sponsored group health insurance have the option of continuing that coverage for 18-36 months, at their own cost. If an employer is required to abide by COBRA, and if you are qualified to receive benefits, you also have to experience what is known as a qualifying event to be eligible for coverage. For each type of person receiving COBRA benefits, the various qualifying events are:

Covered Employee – Voluntary or involuntary termination of employment for reasons other than gross misconduct. Reduction in the number of hours of employment.

Spouse of the Covered Employee – Voluntary or involuntary termination of the covered employee’s employment for any reason other than gross misconduct. Reduction in the hours worked by the covered employee. Covered employee becoming entitled to Medicare. Divorce or legal separation of the covered employee. Death of the covered employee.

Dependent Children of the Covered Employee – Loss of dependent child status under the plan rules. Voluntary or involuntary termination of the covered employee’s employment for any reason other than gross misconduct. Reduction in the hours worked by the covered employee. Covered employee’s becoming entitled to Medicare. Divorce or legal separation of the covered employee. Death of the covered employee.

The length of time that an individual can receive COBRA benefits depends on who is receiving the benefit and what qualifying event is involved. Employees, dependent children and dependent spouses can continue coverage for 18 months when the qualifying event is job termination or a reduction of work hours. Children and spouses can continue coverage for up to 36 months if a covered employee becomes eligible for Medicare or dies, if there is a divorce or legal separation, or if the child loses dependent status.

You Still Must Pay for COBRA Benefits

When you receive COBRA benefits after a qualifying event, the cost involved for coverage is usually increased from what you were paying previously. Employers that paid for all or part of your health insurance premiums before COBRA may continue to do so, but they are not legally required to and that rarely occurs. Under COBRA, most beneficiaries are required by their employer to pay the entire amount it costs to insure them. In addition, there may be a two-percent administrative fee charged to them, but overall costs charged to the COBRA recipients cannot exceed 102% of their previous premium. If an individual or family on COBRA does not make timely premium payments to the group plan, they may be terminated by the group plan and lose their coverage and COBRA rights.

To whom does COBRA apply?

Both full- and part-time employees are counted to determine whether a plan is subject to COBRA. Each part-time employee is counted as a fraction of an employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full-time.

COBRA applies to private employers and state and local government health plans, but it does not apply to federal government plans and those sponsored by certain church organizations. (The federal government offers its own continuation-of-coverage benefits to eligible individuals.) COBRA also does not apply if a company goes out of business or if it ceases to offer group health insurance to its employees.

Group health insurance plans subject to COBRA, must be what are known as qualified beneficiaries in order to receive benefits. A qualified beneficiary generally is an individual covered by the group health plan on the day before a qualifying event who is an employee, the employee’s spouse, or an employee’s dependent child. In certain cases, a retired employee, the retired employee’s spouse, and the retired employee’s dependent children may be qualified beneficiaries. In addition, any child born to or placed for adoption with a covered employee during the period of COBRA coverage is considered a qualified beneficiary. Agents, independent contractors and directors who participate in the group health plan may also be qualified beneficiaries.

Is COBRA your best health insurance Option?

Probably not!

New plans available to replace expensive COBRA premiums

With the passing of the Affordable Care Act (ACA), individuals that lose their group coverage have the option to enroll in a private health insurance plan through any health insurance company offering individual insurance or through the Covered California health insurance exchange. Some individuals will qualify for a health insurance premium subsidy.

In the past individuals may have had no other options other than to continue their work insurance coverage, often due to being uninsurable and unable to apply for individual health insurance coverage. Today, everyone must be accepted and cannot be declined due to a past or existing pre-existing medical condition.

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